Credit bureau Score: Do you know your score and its meaning?
Meaning of Credit bureau Score
In order to understand how the calculation works, one should be clear what the central term Credit bureau Score means. The Credit bureau score shows a probability that a loan will be repaid on time. So, it basically represents the creditworthiness of a person or a group of people. Accordingly, the higher the value, the higher the chance that you will get a loan.
One has to mention that the score is not the only decisive factor. In addition to the score, the credit decision includes both income and various types of collateral, such as a property. The final decision on lending is based on the overall assessment.
How is the Credit bureau score determined?
Credit bureau score is determined using a mathematical-statistical formula. The formula itself is a protected business secret, which must not be published. To determine the value, several data are used, which are stored at Credit bureau.
What personal data is interesting for Credit bureau?
- Personal data: such as name, age, address, gender, etc. The following principles apply: the older the better (older people have better payment behavior and, on average, are also more solvent), and the less often there has been a change of residence in the past, the more positive it becomes it evaluates (continuity is seen as a positive quality).
- Payment behavior: Both negative characteristics such as defaults and positive ones such as timely or early loan repayments are included in the calculation formula.
- Existing / expired borrowing: Each borrowing has a negative impact on the score. Large bank loans are considered as well as small loans, financing for internet trading, etc.
A score value is calculated from these values, which are then queried by banks, mail order companies, etc. On the basis of the values, a risk is estimated from score tables, which is then decisive for the lending decision.
There are several Credit bureau score tables. The reason for this is that risks are valued differently depending on the industry.
The base score: Shows a person’s creditworthiness and is recalculated every quarter. The values are between 0 and 100%. Less than 50% is seen as a very critical risk, between 50 and 80% the risk is very high, and only from 95% is the risk of insolvency seen as low.